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When you register for VAT, there’s a time limit for backdating claims for VAT paid before registration. From your date of registration the time limit is:
- 4 years for goods you still have, or that were used to make other goods you still have
- 6 months for services
Accountingweb reported on 12th June that the goal posts seem to have moved, here is their example..
Ken has been a self-employed pest controller for many years. He registered for VAT with effect from 1 May 2015, at which point he held a van that cost him £24,000 on 1 May 2013, and equipment that he bought for £9,000 on 1 May 2012, both inclusive of VAT. He expects to use the van for eight years and the tools for five years.
Previously most VAT advisers would advise Ken to reclaim VAT of £4,000 in respect of the van and £1,500 paid on the equipment.
The new HMRC interpretation of EC VAT Directive 2006/112 article 289 (set out in VAT Input Tax Manual para 32000) is that as the van has been used for 2/8th of its life, just £3,000 (6/8 x 4000) of the input VAT can be reclaimed. For the equipment a similar calculation reduces the VAT reclaim to £600 (2/5 x1500).
Ken is obviously losing out by £1,900 of unrecoverable VAT.
Taxation Magazine also have an article pointing out the goal posts have moved
What is worrying is that as so many tax advisers will have given potentially incorrect advice based on the new interpretation by HMRC (which HMRC say isn’t a change), will this mean that we will see backdated enquiries and penalties for clients?
It currently takes around a month for HM Revenue & Customs (HMRC) to process applications for VAT registration, although it can take longer if they need to carry out additional checks.
GOV.UK say it could take as little as 14 working days.
HMRC aims to process 70 per cent of applications within 10 working days and most are processed within a month.
But there are cases where it can take a lot longer, possibly even 6 months.
Between applying for VAT registration and receiving your VAT registration number, you must still account for and pay any VAT due. You become liable for VAT from the date you must be registered or asked for your voluntary registration to start, not the date that you actually apply for registration or the date you receive your VAT registration number.
You may also reclaim any VAT you pay on your purchases from the date you must be registered, so you must also keep records of any invoices where your suppliers have charged you VAT.
Until you receive your VAT registration number you must not charge VAT, or show VAT on your invoices. To make sure that you do not lose income in the period after you applied for VAT registration but before you receive your VAT registration number, you should increase your prices by an amount equivalent to the VAT rate relevant for your goods or services, and explain to your customers why you are doing so.
Once you receive your VAT registration number you can then reissue those invoices, amended to show your VAT registration number and the VAT charged. This will make sure that your VAT-registered customers may reclaim the VAT that they have paid.
From a business perspective this is messy, you have to ask you customers to pay 20% extra on the promise that you will later give them a credit and a vat invoice so that they can reclaim the VAT!
I think HMRC should give this some thought, perhaps VAT registration could be fast tracked or done instantly by phone or online?